The slow pace of unwinding the soft money policy of the Reserve Bank of India is a cause for concern, according to the Morgan Stanley Asia Chairman, Mr Stephen Roach.

The RBI has only hiked rates by 50 basis points above the crisis rates. There is yet another 375 bps left to tighten, said Mr Stephen Roach.

Going forward, the RBI needs to do a lot more tightening. With the economy growing at 8.5 per cent and inflation on the rise, if the RBI leaves the policy rates as they are, then you are asking for trouble Mr Roach told reporters at a Morgan Stanley investor summit here on Wednesday.

The fall in the savings rate in India is also a cause for concern, said Mr Roach.

The savings rate here has fallen from around 36 per cent to 32 per cent as people spend more. If the savings rate does not go back to the high 30s, soon a lot of the success of development will be compromised.

He also added that though the fiscal deficit will reduce this year, it will be because of one off payments such as divestments and money from the 3G auctions. It is not a meaningful reduction. The Government will have to do more than this, said Mr, Roach.

Mr Roach is of the view that the current financial crisis in the Euro zone is serious but it will not lead to a meltdown as seen in early 2007 and in 2008 and will not lead to a double dip recession.

He expects global economic recovery to be weak, with about 3.25-3.5 per cent average growth over the next three to five years.

The fiscal consolidation in Europe due to crisis could lead to a 1-1.5 per cent of GDP wipe out of the European economy. This will be about 4/10 th of the global GDP, he added.